Baltic Dry Index. 820 +39
LIR Gold Target by 2019: $30,000. Revised due to QE programs.
“We’re going to have a bond bear-market, like the bear market in
stocks. This will be the most predicted train wreck in history.”
Art Steinmetz. Chief
investment officer at OppenheimerFunds.
For more on Germany flipping out scroll down to
Crooks Corner, but from London this morning it looks like every man and country
for itself. Stay long physical precious metals. German finance minister Wolfgang
Schaeuble has just started the race for the lifeboats. Men and the fit first,
apparently, as the German finance minister panics. America and the UK are toast
he thinks. More wilful denial about the terminal state of Euroland , it seems
to me.
We open with today’s top story. Sadly another nail
in Club Med’s coffin.
Desert Massacre Threatens Africa’s Largest Gas Industry
By Caroline Alexander & Alessandra Migliaccio
- Jan 18, 2013 12:00 AM GMT
The killing of foreign workers in the Algerian desert threatens production
from North Africa’s largest oil and gas industry, the main source of revenue
for a country that avoided unrest when the Arab spring swept away regimes
across the region. Yesterday’s bloody end to a hostage-taking by Islamist rebels at a BP Plc-operated natural gas field supplying 12 percent of Algeria’s output will make foreign explorers wary about working in the country, said Ahmed Amdimi, a professor of political science at the University of Algiers. Spain’s Cia. Espanola de Petroleos SA, Statoil ASA and BP yesterday became the first oil companies to evacuate workers.
“The oil and gas installations were even more secure than the army barracks, they were oases in an unsafe country,” said James Le Sueur, a history professor at the University of Nebraska in Lincoln and author of “Algeria Since 1989: Between Terrorism and Democracy.” “That they finally got to them indicates a very substantial threat.”
Algeria is the third-largest gas supplier to the 27-nation European Union, piping fuel under the Mediterranean. Energy accounts for 70 percent of tax revenue and 98 percent of exports, according to the African Development Bank. Worsening security in the Sahara desert may slow drilling by producers including France’s Total SA (FP), Italy’s Eni SpA (ENI) and Statoil.
“Algeria lives off oil and gas,” Amdimi said. “To strike against that is to strike against Algeria as a whole. If other operations take place, this will have a very dangerous effect on the Algerian economy.”
Gas prices rose in Italy, which gets 33 percent of its supply from Algeria.
More
http://www.bloomberg.com/news/2013-01-18/desert-massacre-threatens-africa-s-largest-gas-industry-energy.html
Next, the UK’s Telegraph predicts the arrival of a
de facto gold standard. In a world on the Great Nixonian Error of fiat currency,
and QE to infinity and beyond, who am I to disagree. Stay long physical precious
metals against the breakup of the Eurozone and devaluation of the dollar, yen,
Pound and Yuan.
"As fewer and fewer people have confidence in paper as a store of value, the price of gold will continue to rise. The history of fiat money is little more than a register of monetary follies and inflations. Our present age merely affords another entry in this dismal register."
Hans F. Sennholz
A new Gold Standard is being born
Last updated: January 17th, 2013
The world
is moving step by step towards a de facto Gold Standard, without any
meetings of G20 leaders to announce the idea or bless the project.
Some
readers will already have seen the GFMS Gold Survey for 2012 which reported
that central banks around the world bought more bullion last year in terms of
tonnage than at any time in almost half a century.
They
added a net 536 tonnes in 2012 as they diversified fresh reserves away from the
four fiat suspects: dollar, euro, sterling, and yen.
The
Washington Accord, where Britain, Spain, Holland, South Africa, Switzerland,
and others sold a chunk of their gold each year, already seems another era –
the Gordon Brown era, you might call it.
That was
the illusionary period when investors thought the euro would take its place as
the twin pillar of a new G2 condominium alongside the dollar. That hope has
faded. Central bank holdings of euro bonds have fallen back to 26pc, where they
were almost a decade ago.
Neither
the euro nor the dollar can inspire full confidence, although for different
reasons. EMU is a dysfunctional construct, covering two incompatible economies,
prone to lurching from crisis to crisis, without a unified treasury to back it
up. The dollar stands on a pyramid of debt. We all know that this debt will be
inflated away over time – for better or worse. The only real disagreement is
over the speed.
The
central bank buyers are of course the rising powers of Asia and the commodity
bloc, now holders of two thirds of the world’s $11 trillion foreign reserves,
and all its incremental reserves.
It is no
secret that China is buying the dips, seeking to raise the gold share of its
reserves well above 2pc. Russia has openly targeted a 10pc share. Variants of
this are occurring from the Pacific region to the Gulf and Latin America. And
now the Bundesbank has chosen to pull part of its gold from New York and Paris.
Personally,
I doubt that Buba had any secret agenda, or knows something hidden from the
rest of us. It responded to massive popular pressure and prodding from
lawmakers in the Bundestag to bring home Germany’s gold. Yet that is not the
end of the story. The fact that this popular pressure exists – and is
well-organised – reflects a breakdown in trust between the major democracies
and economic powers. It is a new political fact in the global system.
Pimco’s
Mohammed El Erian said this may have a knock-on effect:
“In the
first instance, it could translate into pressures on other countries to also
repatriate part of their gold holdings. After all, if you can safely store your
gold at home — a big if for some countries — no government would wish to be
seen as one of the last to outsource all of this activity to foreign central
banks.
If
developments are limited to this problem, there would be no material impact on
the functioning and well-being of the global economy. If, however, perceptions
of growing mutual mistrusts translate into larger multilateral tensions, then
the world would find itself facing even greater difficulties resolving payments
imbalances and resisting beggar-thy-neighbour national policies.
“The most
likely outcome right now is for Germany’s decision to have minimum systemic
impact. But should this be wrong and the decision fuel greater suspicion – a
risk scenario rather than the baseline – the resulting hit to what remains in
multilateral policy co-operation would be problematic for virtually everybody.
As I
reported on Tuesday, gold veteran Jim Sinclair thinks it is an earthquake,
comparing it to Charles de Gaulle’s decision to pull French gold from New York
in the late 1960s – the precursor to the breakdown of the Bretton Woods system
three years later when Nixon suspended gold conversion.
More
Below, more of what seems to have unnerved Herr
Schaeuble. In the 21st century America’s cities and states are going
to default!
"When paper money systems begin to crack at the seams, the run to gold could be explosive."
Harry Browne
Cities’ pensions face big shortfall
January 17, 2013, 5:06 PM
By Matthew Heimer
Unmanageable promises and an unsteady economy have resulted in shortfalls for state governments’ retiree pension and health programs that now total almost $1.4 trillion, (The problem is so big in my home state of Illinois that we’ve had to appoint a mascot, Squeezy the Pension Python, to alert voters to the impending fiscal disaster; you can meet him at around the 2:20 mark of the video below.) The Pew Center on the States has now tunneled down to the next level of government, and the news isn’t much more encouraging: The nation’s big cities are also facing big gaps in paying for the benefits they’ve promised to their retired employees.The Pew study, released yesterday, looks at 61 cities – the most populous burgs in each state, plus every other city with a population greater than 500,000. The data covers the years 2007 through 2009, with 2010 data included for 40 of the cities. (It’s worth noting that the subsequent modest rebound in the economy may have improved the fiscal picture slightly.) In total, Pew found, those cities were underfunding their obligations by $217 billion dollars.
Shortfalls like these, of course, can have a huge impact on the retirement security of public employees, who may face benefit cuts, and of the rest of us, who may wind up paying higher taxes to cover the gaps. MarketWatch’s Robert Powell recently wrote about how residents of pension-stricken states and cities can prepare themselves for the impact: Click here for more.
More
http://blogs.marketwatch.com/encore/2013/01/17/cities-pensions-face-big-shortfall/
Next, Japan is about to take the lead in the race to devalue its fiat currency. The race to the bottom is well and truly on.
"Gold would have value if for no other reason than that it enables a citizen to fashion his financial escape from the state."
William F. Rickenbacker
BOJ may pledge open-ended asset buying: sources
TOKYO |(Reuters) - The Bank of Japan will consider making an open-ended commitment next week to buy government bonds and other assets until 2 percent inflation is in sight and the economy is on a more solid footing, according to sources familiar with its thinking.
The central bank will also consider scrapping interest it pays on banks' reserves, the sources added.
Faced with relentless pressure from Prime Minister Shinzo Abe to do more to pull Japan out of deflation, the BOJ is expected to double its inflation target and possibly boost its long-running asset-buying scheme at a two-day policy review that ends on Tuesday.
Any steps beyond that, however, would come as a surprise for investors, possibly putting the yen under more selling pressure and further boosting Japanese stocks, which have bolted to their highest levels in nearly three years on hopes of bolder policy measures.
The BOJ and the government are in final talks on the contents of a joint policy statement they aim to issue on January 22, and both have already agreed on the 2 percent inflation goal, deputy economics minister Yasutoshi Nishimura told Reuters in an interview on Friday.
More
http://www.reuters.com/article/2013/01/18/us-japan-economy-nishimura-boj-idUSBRE90H02720130118
Next, more on Boeing’s nightmare. When lithium
burns you don’t want to be at 30,000 feet. Der Spiegel puts the boot into
Boeing’s 787 “Dreamliner.” Would you like toast with your meal? Are lithium and
airplanes compatible? What would have happened if the ANA 787 had been half way
across the Pacific heading to LA? Until Boeing comes up with some answers,
would you book your family on a 787?
Problem Plane: Nightmare Batteries Plague Dreamliner
The latest problems with
Boeing's new 787 Dreamliner passenger jet could be a disaster for the US plane
manufacturer. The lithium-ion batteries used on board are unique -- and
apparently also combustible. In the worst case, Boeing may have to make
extensive modifications.
----The
shaky mobile-phone videos were already circulating online Wednesday morning,
shortly after the Boeing 787 with Japan's All Nippon Airways made an emergency
landing at the provincial Takamatsu airport in western Japan. These videos are
a living nightmare for Boeing, the proud American plane manufacturer, and its
engineers. The plane was forced to land after a warning of battery failure and
the resulting smoke.
Until now, Boeing has tried to depict the problems with its prestige project as nothing more than normal growing pains. But aviation experts say that issues with the battery go to the core of the airplane's design.
The problem could turn out to be even more serious than the hairline cracks in the wings of Airbus's A380 superjumbo, which are annoying and costly to repair, but don't affect the architecture of the plane as a whole.
This isn't the case with the Dreamliner's problems. Kevin Hiatt, president of the Virginia-based Flight Safety Foundation, says the problems "are quite serious for Boeing because they affect the Dreamliner's entire system."
The
Boeing 787's electrical system is powered by lithium-ion batteries, a type that
has never been used on passenger jets. These are like the ones used in
smartphones, but much bigger, with one version weighing some 30 kilograms (66
pounds). Their capacity is also considerably larger than the nickel-cadmium
batteries that are otherwise used in planes and pose little fire danger. The
lithium-ion batteries, however, are at risk of catching fire or exploding, and
they can become hot enough to melt the aluminium used to build airplanes.
New
Systems Require More Electricity
But the
Dreamliner desperately requires such a large energy-storage unit because Boeing
engineers in Seattle redesigned a number of control systems to be powered
electrically rather than hydraulically. That includes the compressor that
provides cabin air as well as the electro-thermal heater mats meant to prevent
the wings on the wide-body plane from icing over.
Classic
airliner designs use hot air from the engines for this purpose, but Boeing
engineers ventured into new territory in their efforts to cut down on weight
and energy usage. The company says that, as a result, the Dreamliner uses 20
percent less kerosene than planes of a similar size, and that at least 3 to 4
percent of the fuel savings comes from the new electric system, which has been
dubbed the "Electrical Power Conversion System" by Thales, its French
manufacturer.
The heart
of the construction is a turbine at the plane's tail that generates electricity
instead of compressed air, as a conventional plane does. But the Dreamliner
still needs electricity when the engines aren't running -- especially if there
is an in-flight emergency in which the turbines are no longer generating
electricity. As a result, the Dreamliner requires a massive amount of battery
power on board. And only the combustible lithium-ion batteries, housed in two
different places on the plane, can supply it.
More
"The paper standard is self-destructive."
Hans F. Sennholz
At the Comex silver depositories Thursday final figures were: Registered 37.97
Moz, Eligible 114.03 Moz, Total 152.00 Moz.
Crooks and
Scoundrels Corner
The bent, the seriously bent, and the totally
doubled over.
Below, Germany panics and starts the blame game. Stay long physical
precious metals.
Britain has more debt than the eurozone, says Germany's Wolfgang Schaeuble
Germany's finance minister Wolfgang Schaeuble has said that the problem of high indebtedness is not limited to the crisis-hit eurozone and that the situation in Britain and the US is worse.
4:03PM GMT 17 Jan 2013
Speaking
in Parliament, Mr Schaeuble also said he was worried by the policies pledged by
the recently elected government in Japan, which has vowed a big increase in
spending to bolster the econony, AFP reported.
"Britain
has a higher state debt than the eurozone average and I don't even want to
mention the United States of America," Schaeuble said.
"And
I will add: I am quite concerned by the new policies of the newly elected
government in Japan."
He said
there was an "excess of liquidity" on the global financial markets,
which is being fuelled by a "false understanding of central bank
policy".
Since
coming to power last month, Japanese Prime Minister Shinzo Abe has promised
huge spending and called for central bank action to boost the economy.
More
Another weekend, and a troubled one concerning Algeria and much of
Europe’s non-Russian gas supply. The
great euro disaster just keeps on digging a bigger hole. Have a great weekend
everyone.
"Gold was not selected arbitrarily by governments to be the monetary standard. Gold had developed for many centuries on the free market as the best money; as the commodity providing the most stable and desirable monetary medium."
Murray N. Rothbard
The monthly Coppock Indicators finished December:
DJIA: +100 Down. NASDAQ: +123 Unch. SP500: +129 Up.
All three indexes are giving different
signals. A time for caution.
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